CANDENTE RESOURCE CORP.
Consolidated Financial Statements
September 30, 2007
(Stated in U.S. Dollars)
Unaudited Interim Financial Statements
In accordance with National Instrument 51-102 released by the Securities Administrators, the Company discloses that its external auditors have not reviewed the unaudited financial statements for the period ended September 30, 2007
CANDENTE RESOURCE CORP.
Consolidated Balance Sheets
(Stated in U.S. Dollars)
September 30, 2007 | December 31, 2006 | |||||
A S S E T S | ||||||
Current assets | ||||||
Cash and cash equivalents (Note 2) | $ 11,552,320 | $ 3,089,422 | ||||
Amounts receivable | 285,956 | 76,766 | ||||
Due from related party | 21,874 | - | ||||
Marketable securities (Notes 2 and 6) | 54,771 | 33,296 | ||||
Prepaid expenses and deposits | 11,459 | 20,630 | ||||
11,926,380 | 3,220,114 | |||||
Value added tax receivable (Peru) | 2,128,516 | 1,068,433 | ||||
Unproven mineral rights(Notes 2 and 3) | 20,082,218 | 10,701,855 | ||||
Equipment(Notes 2 and 4) | 309,485 | 151,188 | ||||
$ 34,446,599 | $ 15,141,590 | |||||
L I A B I L I T I E S | ||||||
Current liabilities | ||||||
Accounts payable and accrued liabilities | $ 1,560,293 | $ 864,549 | ||||
S H A R E H O L D E R S’ E Q U I T Y | ||||||
Share capital(Note 5) | $ 38,936,679 | $ 20,102,654 | ||||
Contributed surplus(Note 5) | 3,335,095 | 1,865,429 | ||||
Deficit | (9,385,468) | (7,691,042) | ||||
32,886,306 | 14,277,041 | |||||
$ 34,446,599 | $ 15,141,590 | |||||
Continued operation (Note 1) | ||||||
Approved on behalf of the Board of Directors: | ||||||
“Joanne Freeze” | “Larry Kornze” | |||||
Director | Director |
See Accompanying Notes to the Consolidated Financial Statements
CANDENTE RESOURCE CORP.
Consolidated Statements of Operations and Deficit
(Stated in U.S. Dollars)
For the Three Months Ended | For the Nine Months Ended | |||||||
September 30, | September 30, | |||||||
2007 |
| 2006 | 2007 |
| 2006 | |||
$ | $ | $ | $ | |||||
Expenses | ||||||||
20,781 | 24,629 | 74,200 | 56,888 | |||||
Amortization of equipment | ||||||||
681 | 2,334 | 2,502 | 14,149 | |||||
Bank charges and interest | ||||||||
51,283 | 53,725 | 225,049 | 250,805 | |||||
Corporate development | ||||||||
(601,052) | (28,582) | (824,221) | (149,773) | |||||
Gain on foreign exchange | ||||||||
(67,939) | (28,233) | (97,640) | (47,388) | |||||
Interest income | ||||||||
30,177 | 37,656 | 76,130 | 145,422 | |||||
Investor relations | ||||||||
29,346 | 20,554 | 149,019 | 57,782 | |||||
Legal, audit and accounting | ||||||||
22,409 | 59,243 | 197,176 | 150,858 | |||||
Management and office salaries | ||||||||
59,434 | 32,581 | 161,903 | 99,624 | |||||
Office, rent and miscellaneous | ||||||||
7,464 | 743 | 10,636 | 3,035 | |||||
Travel | ||||||||
3,466 | - | 58,554 | 17,954 | |||||
Regulatory and filing fees | ||||||||
33,326 | 29,774 | 128,193 | 78,464 | |||||
Shareholder communications | ||||||||
305,632 | 164,470 | 1,532,925 | 520,744 | |||||
Stock-based compensation | ||||||||
Write-off of unproven mineral rights | - | - | - | 3,577 | ||||
104,992 | (368,894) | (1,694,426) | (1,202,141) | |||||
Income (loss) for the period | ||||||||
(9,490,460) | (6,732,174) | (7,691,042) | (5,898,927) | |||||
Deficit, beginning of period | ||||||||
$ (9,385,468) | $ (7,101,068) | $ (9,385,468) | $ (7,101,068) | |||||
Deficit, end of period | ||||||||
Loss per share (Note 7) | $ 0.00 | $ (0.01) | $ (0.03) | $ (0.03) | ||||
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Weighted average number of shares outstanding | 69,950,425 | 47,586,819 | 60,882,456 | 47,515,131 |
See Accompanying Notes to the Consolidated Financial Statements
CANDENTE RESOURCE CORP.
Consolidated Statements of Cash Flows
(Stated in U.S. Dollars)
For the Three Months Ended | For the Nine Months Ended | |||||||
September 30, | September 30, | |||||||
2007 |
| 2006 | 2007 |
| 2006 | |||
Cash provided by (used for): | ||||||||
Operating activities | ||||||||
Income (loss) for the period | $ 104,992 | $ (368,894) | $ (1,694,426) | $(1,202,141) | ||||
Adjustment for items not involving cash: | ||||||||
Amortization of equipment | 20,781 | 24,629 | 74,200 | 56,888 | ||||
Stock-based compensation | 305,632 | 164,470 | 1,532,925 | 520,744 | ||||
Write-down of unproven mineral rights | - | - | - | 3,577 | ||||
Exploration funds receivable | - | (212,504) | - | - | ||||
Changes in non-cash working capital items: | ||||||||
Amounts receivable | 169,662 | 39,132 | (209,190) | 4,211 | ||||
Prepaid expenses and deposits | 3,897 | (32,904) | 9,171 | (24,431) | ||||
Marketable securities | (3,804) | 30 | (21,475) | (871) | ||||
Accounts payable and accrued liabilities | 106,579 | (511) | 110,408 | (86,824) | ||||
Due to/from related parties | (13,992) | 16,013 | (21,874) | 20,122 | ||||
Cash provided by (used for) operating activities | 693,747 | (370,539) | (220,261) | (708,725) | ||||
Investing activities |
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|
|
| ||||
Acquisition of equipment | (94,295) | (4,855) | (232,497) | (5,814) | ||||
Unproven mineral property exploration costs | (3,231,569) | (1,153,480) | (8,410,225) | (2,281,022) | ||||
Unproven mineral property acquisition costs | (284,792) | (204,046) | (371,370) | (321,313) | ||||
Value added tax receivable | (343,734) | (201,138) | (1,060,083) | (340,367) | ||||
Mineral property cost recoveries | - | 194,718 | - | 453,987 | ||||
Cash used for investing activities | (3,954,390) | (1,368,801) | (10,074,175) | (2,494,529) | ||||
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Financing activities | ||||||||
Option payments and exploration funds received | 2,118 | - | 80,383 | - | ||||
Common shares issued for cash | 794,012 | - | 19,703,136 | 3,813,459 | ||||
Share issue costs | - | - | (1,026,185) | (91,359) | ||||
Cash provided by financing activities | 796,130 | - | 18,757,334 | 3,722,100 | ||||
Net increase (decrease) in cash and cash equivalents | (2,464,513) | (1,739,340) | 8,462,898 | 518,846 | ||||
Cash and cash equivalents, beginning of period | 14,016,833 | 2,939,853 | 3,089,422 | 681,667 | ||||
Cash and cash equivalents, end of period | $ 11,552,320 | $ 1,200,513 | $ 11,552,320 | $ 1,200,513 |
See Accompanying Notes to the Consolidated Financial Statements
CANDENTE RESOURCE CORP.
Consolidated Statements of Accumulated Unproven Mineral Rights
For the Nine Months Ended September 30, 2007
(Stated in U.S. Dollars)
Balance at December 31, 2005 | 2006 Net Expenditures & Write offs | Balance at December 31, 2006 | 2007 Net Expenditures (Recovery) | Balance at September 30, 2007 | ||||||
PERU | $ | $ | $ | $ | $ | |||||
El Tigre Property | ||||||||||
Acquisition costs | 58,565 | 4,500 | 63,065 | 5,700 | 68,765 | |||||
Deferred exploration costs: |
|
| ||||||||
Assays | 3,326 | 114 | 3,440 | - | 3,440 | |||||
Equipment maintenance & rental | 2,386 | 2,902 | 5,288 | - | 5,288 | |||||
Field supplies & travel expenses | 31,076 | 5,432 | 36,508 | 8 | 36,516 | |||||
Field office and personnel | 85,962 | 12,343 | 98,305 | 661 | 98,966 | |||||
Geological & geophysical | 38,589 | 51,281 | 89,870 | 53 | 89,923 | |||||
Maps & publications | 8,846 | 405 | 9,251 | 1 | 9,252 | |||||
Exploration recovery | (150,000) | (108,343) | (258,343) | - | (258,343) | |||||
78,750 | (31,366) | 47,384 | 6,423 | 53,807 | ||||||
Lunahuana Property |
| |||||||||
Acquisition costs | 113,454 | 39,481 | 152,935 | 30,465 | 183,400 | |||||
Deferred exploration costs: |
| |||||||||
Assays | 9,232 | 165 | 9,397 | - | 9,397 | |||||
Equipment maintenance & rental | 3,408 | 2,804 | 6,212 | - | 6,212 | |||||
Field supplies & travel | 25,441 | 2,170 | 27,611 | 45 | 27,656 | |||||
Field office & personnel | 55,844 | 7,595 | 63,439 | 3,636 | 67,075 | |||||
Geological & geophysical | 109,700 | 13,365 | 123,065 | 286 | 123,351 | |||||
Maps & publications | 6,423 | 856 | 7,279 | 7 | 7,286 | |||||
323,502 | 66,436 | 389,938 | 34,439 | 424,377 | ||||||
Las Sorpresas Property | ||||||||||
Acquisition costs | 51,840 | 25,422 | 77,262 | 18,222 | 95,484 | |||||
Deferred exploration costs: |
| |||||||||
Assays | 5,391 | 58 | 5,449 | - | 5,449 | |||||
Equipment maintenance & rental | 2,823 | 5,167 | 7,990 | - | 7,990 | |||||
Field supplies & travel | 19,089 | 1,339 | 20,428 | 27 | 20,455 | |||||
Field office & personnel | 95,778 | 3,745 | 99,523 | 2,112 | 101,635 | |||||
Geological & geophysical | 92,512 | 2,918 | 95,430 | 170 | 95,600 | |||||
Maps & publications | 664 | 22 | 686 | 4 | 690 | |||||
Exploration recovery | (150,000) | (19,285) | (169,285) | - | (169,285) | |||||
118,097 | 19,386 | 137,483 | 20,535 | 158,018 |
See Accompanying Notes to the Consolidated Financial Statements
CANDENTE RESOURCE CORP.
Consolidated Statements of Accumulated Unproven Mineral Rights
For the Nine Months Ended September 30, 2007
(Stated in U.S. Dollars)
Balance at December 31, 2005 | 2006 Net Expenditures & Write offs | Balance at December 31, 2006 | 2007 Net Expenditures (Recovery) | Balance at September 30, 2007 | ||||||
$ | $ | $ | $ | $ | ||||||
Picota Property | ||||||||||
Acquisition costs | 61,440 | - | 61,440 | 23,348 | 84,788 | |||||
Deferred exploration costs: |
| |||||||||
Assays | 4,796 | 5 | 4,801 | - | 4,801 | |||||
Equipment maintenance & rental | 6,500 | 980 | 7,480 | - | 7,480 | |||||
Field supplies & travel expenses | 12,098 | 517 | 12,615 | 34 | 12,649 | |||||
Field office & personnel | 22,953 | 345 | 23,298 | 2,706 | 26,004 | |||||
Geological & geophysical | 40,370 | 1,441 | 41,811 | 218 | 42,029 | |||||
Maps & publications | 3,140 | 2 | 3,142 | 6 | 3,148 | |||||
151,297 | 3,290 | 154,587 | 26,312 | 180,899 | ||||||
Pamel Property | ||||||||||
Acquisition costs | 104,522 | 15,601 | 120,123 | 84,722 | 204,845 | |||||
Deferred exploration costs: |
| |||||||||
Assays | 26,264 | 38,684 | 64,948 | 18,935 | 83,883 | |||||
Drilling | - | 204,443 | 204,443 | 205,753 | 410,196 | |||||
Equipment maintenance & rental | 45,611 | 23,903 | 69,514 | 21,329 | 90,843 | |||||
Field supplies & travel expenses | 28,436 | 49,496 | 77,932 | 18,618 | 96,550 | |||||
Field office & personnel | 120,141 | 186,670 | 306,811 | 217,331 | 524,142 | |||||
Geological & geophysical | 135,966 | 143,097 | 279,063 | 69,873 | 348,936 | |||||
Maps & publications | 10,247 | 4,970 | 15,217 | 345 | 15,562 | |||||
Option and recovery payments | (145,000) | (913,305) | (1,058,305) | (80,383) | (1,138,688) | |||||
326,187 | (246,441) | 79,746 | 556,523 | 636,269 | ||||||
Las Brujas Property | ||||||||||
Acquisition costs | 22,801 | 6,000 | 28,801 | 6,000 | 34,801 | |||||
Deferred exploration costs: |
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Assays | 2,628 | 17 | 2,645 | - | 2,645 | |||||
Equipment maintenance & rental | 82 | 1,018 | 1,100 | - | 1,100 | |||||
Field supplies & travel expenses | 7,764 | 1,071 | 8,835 | 9 | 8,844 | |||||
Field office & personnel | 26,298 | 1,435 | 27,733 | 695 | 28,428 | |||||
Geological & geophysical | 15,515 | 1,994 | 17,509 | 56 | 17,565 | |||||
Maps & publications | 2,332 | 7 | 2,339 | 1 | 2,340 | |||||
77,420 | 11,542 | 88,962 | 6,761 | 95,723 |
See Accompanying Notes to the Consolidated Financial Statements
CANDENTE RESOURCE CORP.
Consolidated Statements of Accumulated Unproven Mineral Rights
For the Nine Months Ended September 30, 2007
(Stated in U.S. Dollars)
Balance at December 31, 2005 | 2006 Net Expenditures & Write offs | Balance at December 31, 2006 | 2007 Net Expenditures (Recovery) | Balance at September 30, 2007 | ||||||
$ | $ | $ | $ | $ | ||||||
Canariaco Property | ||||||||||
Acquisition costs | 134,963 | 72,902 | 207,865 | 49,680 | 257,545 | |||||
Deferred exploration costs: |
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Assays | 132,309 | 104,077 | 236,386 | 361,842 | 598,228 | |||||
Drilling | 950,264 | 1,516,088 | 2,466,352 | 2,772,511 | 5,238,863 | |||||
Equipment maintenance & rental | 122,100 | 128,230 | 250,330 | 338,047 | 588,377 | |||||
Field supplies & travel expenses | 205,417 | 219,023 | 424,440 | 530,495 | 954,935 | |||||
Field office & personnel | 756,347 | 742,424 | 1,498,771 | 2,248,820 | 3,747,591 | |||||
Geological/geophysical/engineering | 553,183 | 603,256 | 1,156,439 | 1,259,763 | 2,416,202 | |||||
Maps & publications | 17,198 | 97,066 | 114,264 | 62,054 | 176,318 | |||||
2,871,781 | 3,483,066 | 6,354,847 | 7,623,212 | 13,978,059 | ||||||
Alto Dorado/Toril Property | ||||||||||
Acquisition costs | 139,947 | 44,239 | 184,186 | 14,700 | 198,886 | |||||
Deferred exploration costs: |
| |||||||||
Assays | 44,644 | 12,657 | 57,301 | - | 57,301 | |||||
Drilling | 146,010 | 184,211 | 330,221 | - | 330,221 | |||||
Equipment maintenance & rental | 115,468 | 9,870 | 125,338 | 304 | 125,642 | |||||
Field supplies, camp & travel | 158,469 | 28,717 | 187,186 | 2,468 | 189,654 | |||||
Field office & personnel | 465,536 | 65,736 | 531,272 | 19,224 | 550,496 | |||||
Geological & geophysical | 568,983 | 45,104 | 614,087 | 2,827 | 616,914 | |||||
Maps & publications | 44,677 | 1,781 | 46,458 | 8 | 46,466 | |||||
Option payments received | (200,000) | (201,587) | (401,587) | - | (401,587) | |||||
1,483,734 | 190,728 | 1,674,462 | 39,531 | 1,713,993 | ||||||
Other Properties | ||||||||||
Acquisition costs | 337,530 | 74,144 | 411,674 | 155,432 | 567,106 | |||||
Deferred exploration costs: |
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Assays | 54,949 | 11,764 | 66,713 | 384 | 67,097 | |||||
Equipment maintenance & rental | 38,800 | 17,424 | 56,224 | 278 | 56,502 | |||||
Field supplies & travel expenses | 98,889 | 24,993 | 123,882 | 2,218 | 126,100 | |||||
Field office & personnel | 209,607 | 43,457 | 253,064 | 31,502 | 284,566 | |||||
Geological & geophysical | 249,443 | 126,169 | 375,612 | 7,120 | 382,732 | |||||
Maps & publications | 39,564 | 4,693 | 44,257 | 844 | 45,101 | |||||
Option payments received | (10,000) | - | (10,000) | - | (10,000) | |||||
Write-down of mineral properties | (25,000) | - | (25,000) | - | (25,000) | |||||
993,782 | 302,644 | 1,296,426 | 197,778 | 1,494,204 | ||||||
Peru - Total | 6,424,550 | 3,799,285 | 10,223,835 | 8,511,514 | 18,735,349 |
See Accompanying Notes to the Consolidated Financial Statements
CANDENTE RESOURCE CORP.
Consolidated Statements of Accumulated Unproven Mineral Rights
For the Nine Months Ended September 30, 2007
(Stated in U.S. Dollars)
Balance at December 31, 2005 | 2006 Net Expenditures & Write offs | Balance at December 31, 2006 | 2007 Net Expenditures (Recovery) | Balance at September 30, 2007 | |||||||||||
$ | $ | $ | $ | $ | |||||||||||
Mexico Property | |||||||||||||||
El Oro Property | |||||||||||||||
Acquisition costs | - | 53,483 | 53,483 | 54,322 | 107,805 | ||||||||||
Deferred exploration costs: | |||||||||||||||
Assays | - | - | - | 28,459 | 28,459 | ||||||||||
Drilling | - | - | - | 339,868 | 339,868 | ||||||||||
Equipment maintenance & rental | - | - | - | 23,662 | 23,662 | ||||||||||
Field supplies & travel expenses | - | 22,476 | 22,476 | 83,170 | 105,646 | ||||||||||
Field office & personnel | - | 7,247 | 7,247 | 44,748 | 51,995 | ||||||||||
Geological & geophysical | 668 | 65,829 | 66,517 | 288,307 | 354,824 | ||||||||||
Maps & publications | - | 618 | 618 | 2,375 | 2,993 | ||||||||||
Mexico Total | 688 | 149,653 | 150,341 | 864,911 | 1,015,252 | ||||||||||
Canada (Newfoundland) |
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Virgin Arm, Staghorn and Other Properties | |||||||||||||||
Acquisition costs | 69,116 | 47,964 | 117,080 | 3,394 | 120,474 | ||||||||||
Exploration bonds | 11,439 | (11,439) | - | - | - | ||||||||||
Deferred exploration costs: | |||||||||||||||
Assays | 8,903 | (13) | 8,890 | - | 8,890 | ||||||||||
Equipment maintenance & rental | 12,430 | 2,724 | 15,154 | 544 | 15,698 | ||||||||||
Field supplies & travel expenses | 22,493 | (432) | 22,061 | - | 22,061 | ||||||||||
Field office & personnel | 27,524 | (972) | 26,552 | - | 26,552 | ||||||||||
Geological & geophysical | 139,714 | (2,133) | 137,581 | - | 137,581 | ||||||||||
Maps & publications | 361 | - | 361 | - | 361 | ||||||||||
Canada Total |
| 291,980 |
| 35,699 |
| 327,679 | 3,938 | 331,617 | |||||||
Total Unproven Mineral Rights |
| 6,717,218 |
| 3,984,637 |
| 10,701,855 | 9,380,363 | 20,082,218 |
See Accompanying Notes to the Consolidated Financial Statements
CANDENTE RESOURCE CORP.
Notes to the Consolidated Financial Statements
(Stated in U.S. Dollars)
1.
NATURE OF OPERATIONS AND CONTINUED OPERATIONS
The Company is an exploration stage company incorporated in British Columbia, Canada and its activity is the acquisition and exploration of mineral properties in Peru, Mexico and Newfoundland, Canada. The recoverability of amounts shown for mineral properties is dependent upon the discovery of economically recoverable reserves, the ability of the Company to complete the exploration and development of the properties, and upon future profitable production or proceeds from the disposition thereof. If future financing is unavailable, the Company may not be able to meet its ongoing obligations, in which case the realizable values of its assets may decline materially from current estimates.
Although the Company has taken steps to verify title to mineral properties in which it has an interest in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company’s title.
These consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments, in the normal course of business.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
These consolidated financial statements are prepared in accordance with generally accepted accounting principles in Canada. References to the Company included herein are inclusive of the Canadian parent company and its British Virgin Islands subsidiaries, Candente Resource (BVI) Corp. and Canariaco Copper (BVI) Corp., its Peruvian subsidiaries, Compania Minera Oro Candente S.A. and Exploraciones Milenio S.A., and its Mexican subsidiary Minera CCM. All significant inter-company transactions and balances have been eliminated.
Cash Equivalents
Cash equivalents consist of temporary investments in commercial paper that is highly liquid and readily convertible to known amounts of cash, with maturity dates of less than 90 days and includes the dollar equivalent of gold in gold grams. Cash equivalents are inclusive of accrued interest as receipt of these amounts is also considered to be certain and measurable.
Marketable Securities
Marketable securities are recorded at fair market value and valuation gains and losses are included in comprehensive income. There is currently no material change in valuation.
Comparative Figures
Certain 2006 comparative figures have been reclassified to conform to the financial statement presentation in 2007.
3.
UNPROVEN MINERAL RIGHTS
PERU
a)
Cañariaco Property
Northern Peru
The Company owns a 100% interest in the Cañariaco mineral property located in Northern Peru which had been acquired for $75,880 in 2001.
b)
El Tigre, Lunahuana and Las Sorpresas Properties
Northern Peru
The Company has a 100% interest in the El Tigre, Lunahuana and Las Sorpresas mineral properties, all located in Northern Peru.
3.
UNPROVEN MINERAL RIGHTS (Continued)
During 2004, the Company entered into two separate option agreements whereby the optionee can earn a 51% interest in each of the El Tigre and Las Sorpresas gold properties in Peru by spending $2,500,000 on each property over 3.5 years and by making either cash payments of $570,000 or issuing 250,000 common shares by January 31, 2008. On June 30, 2007 the optionee advised Candente of their decision to withdraw from their option on the El Tigre property.
The Las Sorpresas Property remains under option from Candente to the Optionee but is not currently active in exploration while community contracts are being negotiated.
c)
Picota Property
Northern Peru
The Company owns mineral claims comprising approximately 3,200 hectares in Northern Peru, which had been acquired by staking.
d)
Pamel Property
Central Peru
The Company owns mineral claims comprising approximately 5,800 hectares in the Western Andes which had been acquired by staking and acquired other claims by the issue of 30,000 shares in 2000 and the commitment to issue 30,000 shares at completion of the initial drilling program. There remains further commitment to issue 50,000 shares upon commencement of commercial production.
During 2005, the Company entered into an option agreement whereby the optionee can earn a 51% interest in the property by spending $2,500,000 over 3.5 years and by making either cash payments of $570,000 or by issuing 250,000 shares, to the Company by May 31, 2010. On June 30, 2007 the optionee advised Candente of their decision to withdraw from their option on the Pamel property.
e)
Las Brujas Property
Northern Peru
The Company owns mineral claims comprising approximately 1,000 hectares in Northern Peru, which had been acquired by staking and the payment of a finder’s fee of 20,000 shares in 2000.
f)
Alto Dorado/Toril Property
Central Peru
The Company owns a 100% interest in the Alto Dorado mineral property by payment of $10,000 and the issuance of 100,000 common shares. The Company paid $50,277to the Peruvian government to acquire a 100% interest in the Toril claims. The Alto Dorado property is subject to a 2.5% net smelter royalty, which may be reduced to 1.0% by the Company paying $1,500,000.
During 2005, the Company entered into an option agreement whereby the optionee could earn a 50% interest in the property by spending $5,400,000 over 3.5 years. The optionee was also granted 535,000 share purchase warrants had they elected to proceed at various stages of the agreement. In March 2006, the optionee advised the Company of their decision to withdraw from their option agreement.
g)
Other Peruvian Properties
The Company owns 22 other mineral properties in Peru totaling approximately 37,832 hectares, which had been acquired by staking.
Michoacan/Mexico State, Mexico
During 2006 the Company entered jointly (50%/50%) into an option agreement with another company. This agreement gives the combined companies the right to earn up to a seventy percent (70%) interest in all of the 24 El Oro exploration and mining concessions (14,950 hectares).
3.
UNPROVEN MINERAL RIGHTS (Continued)
Newfoundland, Canada
a)
Staghorn Property
The Company has a 100% interest in 67 claims in Southwestern Newfoundland known as the “Staghorn” property by paying Cdn$105,520, issuing 120,000 common shares and completing Cdn$500,000 in exploration expenditures before November 30, 2006. The property is subject to a 2.5% net smelter royalty, which may be reduced to 1.5% by the Company paying Cdn$1,000,000. During 2006, the Company issued 42,424 common shares in lieu of a required cash payment of Cdn $28,000.
b)
Virgin Arm Property
The Company has staked 92 claims located in the Botwood Basin.
4.
EQUIPMENT
Net Book Value | |||||||
Cost | Accumulated Amortization | September 30, 2007 | December 31, 2006 | ||||
Office furniture and equipment | $ 29,812 | $ 17,743 | $ 12,069 | $ 12,202 | |||
Computer equipment | 58,137 | 36,679 | 21,458 | 18,967 | |||
Security equipment | 13,410 | 7,617 | 5,793 | 6,973 | |||
Exploration equipment (Canada) | 38,234 | 18,728 | 19,506 | 25,169 | |||
Exploration equipment (Peru) | 367,204 | 116,545 | 250,659 | 87,877 | |||
$ 506,797 | $ 197,312 | $ 309,485 | $151,188 |
5.
SHARE CAPITAL
a)
Authorized:
Unlimited number of common shares without par value
b)
Issued:
Nine Months Ended September 30, 2007 | Year Ended December 31, 2006 | |||||||
Number of Shares | Amount | Number of Shares | Amount | |||||
Balance, beginning of period | 53,256,444 | $20,102,654 | 43,718,954 | $12,409,512 | ||||
Private placements | 13,169,870 | 14,885,611 | 8,380,066 | 6,879,155 | ||||
Stock options | 1,570,500 | 867,582 | 725,000 | 383.390 | ||||
Warrants | 2,256,938 | 2,653,294 | 300,000 | 182,134 | ||||
Mineral properties | 60,000 | 93,815 | 132,424 | 99,683 | ||||
Stock-based compensation | - | 333,723 | - | 148,780 | ||||
Balance, end of period | 70,313,752 | $38,936,679 | 53,256,444 | $20,102,654 |
c)
Contributed Surplus
Nine Months Ended | Year Ended | ||
September 30, 2007 | December 31, 2006 | ||
Balance, beginning of period | $ 1,865,429 | $ 1,414,117 | |
Stock-based compensation relating to stock options | 1,532,925 | 574,889 | |
Stock-based compensation relating to warrants | 270,464 | 25,203 | |
Stock options exercised | (333,723) | (148,780) | |
Balance, end of period | $ 3,335,095 | $ 1,865,429 |
5.
SHARE CAPITAL(continued)
d)
Stock options
Expiry Date | Exercise Price Cdn$ | Balance at December 31, 2006 | Granted | Exercised | Expired/ Cancelled | Balance at September 30, 2007 |
6-Feb-07 | 0.17 | 10,000 | - | (10,000) | - | - |
5-Apr-07 | 0.23 | 16,250 | - | (16,250) | - | - |
23-Apr-12 & 6-Sep-07 | 0.33 | 522,500 | - | (457,500) | - | 65,000 |
17-Jan-08 & 4-Feb-08 | 0.48 | 886,000 | - | (88,000) | - | 798,000 |
15-Oct-08 | 0.69 | 29,850 | - | (10,000) | - | 19,850 |
31-Oct-08 & 2-Mar-09 | 0.80 | 786,650 | - | (45,000) | - | 741,650 |
6-Jul-09 to 3-Jan-11 | 0.70 | 2,224,750 | - | (415,000) | - | 1,809,750 |
9-Feb-11 & 9-Mar-11 | 0.75 | 650,000 | - | (212,500) | - | 437,500 |
21-Jun-11 | 0.80 | 100,000 | - | (100,000) | - | - |
29-Sep-11 & 22-Oct-11 | 0.85 | 1,820,000 | - | (208,750) | - | 1,611,250 |
16-Feb-12 | 1.09 | - | 250,000 | - | - | 250,000 |
2-May-12 | 1.32 | - | 300,000 | (7,500) | - | 292,500 |
11-Jun-12 | 1.40 | - | 2,232,500 | - | - | 2,232,500 |
11-Jul-12 | 1.55 | - | 155,000 | - | - | 155,000 |
28-Sep-12 | 1.80 | - | 260,000 | - | - | 260,000 |
7,046,000 | 3,197,500 | (1,570,500) | - | 8,673,000 | ||
Weighted Average Prices (Cdn$) | $0.67 | $1.41 | $0.61 | - | $0.95 |
At September 30, 2007, the weighted average remaining life of the outstanding options is 3.32 years (2006: 3.16 years). During the current period, the Company recorded stock-based compensation expense of $1,532,925 (2006: $574,889) and share issue costs for agents’ warrants of $270,464 (2006: $25,203).
The fair value of stock options granted to directors, officers and employees were estimated at the grant date based on the Black-Scholes option pricing model, using the following weighted average assumptions:
2007 | 2006 | |||
Expected volatility | 63.66% | 54.14% | ||
Risk-free interest rate | 4.57% | 4.03% | ||
Expected lives | 5 years | 5 years | ||
Dividend yield | 0% | 0% | ||
Weighted average fair value of stock options granted | Cdn$0.81 | Cdn$0.40 |
Option pricing models require the input of highly subjective assumptions, particularly as to the expected price volatility of the stock and expected life of the option. Changes in these assumptions can materially affect the fair value estimate and therefore it is management’s view that the existing models alone do not necessarily provide a reliable measure of the fair value of the Company’s stock option grants.
e)
Share Purchase Warrants Outstanding
Expiry Date | Exercise Price Cdn$ | Balance December 31, 2006 | Issued | Exercised | Expired/ Cancelled | Balance at September 30, 2007 |
| ||||||
31-Mar-07 | 1.25 | 2,955,608 | - | (1,913,813) | (1,041,795) | - |
30-Nov-07 | ||||||
to 6-Dec-07 | 1.65 | 1,500,000 | - | (343,125) | - | 1,156,875 |
07-Jun-09 | 1.37 | - | 780,592 | - | - | 780,592 |
4,455,608 | 780,592 | (2,256,938) | (1,041,795) | 1,937,467 | ||
Weighted Average Exercise Price (Cdn$) | $1.39 | $1.37 | $1.31 | $1.25 | $1.54 |
6.
MARKETABLE SECURITIES
At September 30, 2007, the Company held marketable securities with a cost of $54,771 (December 31, 2006: $33,296) and a market value of $46,601 (December 31, 2006: $52,175).
7.
LOSS PER SHARE
Loss per share has been calculated using the weighted average number of shares outstanding during the period. Fully-diluted loss per share has not been disclosed as it is anti-dilutive.
8.
SEGMENTED INFORMATION
September 30, | December 31, | |||
2007 | 2006 | |||
Assets by geographic segment: |
|
| ||
Canada | $ 12,767,303 | $ 3,880,490 | ||
Mexico | 553,277 | 25,394 | ||
Peru | 21,126,019 | 11,235,706 | ||
| ||||
$ 34,446,599 | $ 15,141,590 |
9.
SUBSEQUENT EVENTS
Subsequent to September 30, 2007, the Company:
a)
granted stock options to purchase a total of 600,000 common shares exercisable at a price of Cdn$2.05 per share over a five year period;
b)
issued 450,042 common shares pursuant to the exercise of stock options for total proceeds of Cdn$450,042; and
c)
issued 266,875 common shares pursuant to the exercise of share purchase warrants for total proceeds of Cdn$409,544.